Pre-auction 'rally' lifts gilt volume to year's peak

The volume of government securities market zoomed today to clock Rs 8,000 crore, the highest in the current calendar year.

Analysts dubbed this a pre-auction 'rally', and not without a trace of cynicism "" the Reserve Bank of India is auctioning the 7.49 per cent 2012 paper tomorrow to raise around Rs 5,000 crore for the government.

"And if there is a rise in prices "" and a consequent fall in yields "" the government gets to borrow money that much cheaper," said a broker.

Riding high on the bond rally, the ten-year benchmark 7.38 per cent 2015 paper closed at 6.82 per cent, down from 6.91 per cent on Wednesday.

The prices of long- and medium-term papers went up by almost 75-80 paise and the short-term paper prices went up by 30-35 paise.

"It was a well-participated rally after a long time by banks, mutual funds and brokers," said a dealer.

While the market rally had started a few weeks back with active participation of life insurance major Life Insurance Corporation, it has been taken forward by the nationalised banks and traders.

The market had ended with a volume of around Rs 5,000 crore on Tuesday. The bond market had last seen volumes touching Rs 9,000-9,500 crore in April 2004.

"With 10-year US treasury yields coming off from 4.11 per cent to 3.99 per cent and oil prices marginally sliding to $58.90 per barrel , the Indian bond market has started factoring the positives as there are very few negative triggers," said a dealer.

Another reason for the bullish trend was the fact that the market recovered the liquidity that was sucked out following the state government auction and advance tax outflows last week.

The reverse repo bids that slipped down to Rs 8,000 crore in the last few days recovered back to around Rs 15,000 crore on Wednesday.

Among corporate bonds, oil bonds have become the flavour of the market .

While the oil bonds enjoy the quasi sovereign status, the yield differential is also lucrative, a dealer pointed out.